2015 (10) TMI 2658 - AT - Income Tax

Levy of penalty u/s 221 (1) - Tax Deductor continued deducting the tax, but failed to deposit the same into the Central Govt. account within the stipulated time - assessee in default - binafied belief - CIT-A deleted the penalty - Held that - No reason to interfere with the order of the CIT(A). The order was passed in the light of the Hon ble Supreme Court decision in the case of Amit Mohan Bindal 2009 (8) TMI 44 - SUPREME COURT saying that the penalty (in the context of section 271(1)(c)) is a civil liability albeit a strict liability. Irrespective of tfe fact whether the tax was deducted at source at the time of making payment of salary to the employees and paid beyond prescribed time limits or not deducted at the time of payment of salary but deducted and paid late, there remains no dispute that the appellant was in default in terms of the provisions of section 201(1) of the Act. The only aspect that is to be seen is whether there was good, sufficient or bonafide reasons for not making compliance to the provisions of law. There is no doubt that the issue of deduction of tax at source from the salary of non residents expatriated to India has been debatable issue in as much as whether the tax was required to be deducted by their employer abroad while making payment in their country or by their joint venture partners in India. In the context of provisions of section 192 read with section 9 of the Act vis-a-vis the deduction of tax at source, the Hon ble Apex court in the case of CIT vs. Eli Lilly and Co. (312 ITR 225) has held that this was the first instance that such an issue was examined by the Court. The Hon ble Court also went ahead in holding that where the tax deductor was under a genuine and bonafide belief that it was not under an obligation to withhold taxes, there was no question of imposition of penalty as the assessees had been able to discharge the burden of showing reasonable cause for non deduction of taxes. The Hon ble Court held that only those persons will be liable to penalty who do not have good and sufficient reason for not deducting the tax. The present case is not the case of the Revenue that the tax has been deducted but not paid to the credit of the company. Hence, we uphold the order of ld. CIT(A) and dismiss the appeal filed by the Revenue. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of penalty for failure to deposit tax deducted at source (TDS) within the stipulated time.
2. Determination of whether ignorance of Indian Tax Laws by the Tax Deductor justifies the delay in TDS deposit.

Issue-wise Detailed Analysis:

1. Deletion of penalty for failure to deposit tax deducted at source (TDS) within the stipulated time:

The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which deleted the penalty imposed for not depositing TDS within the stipulated time. The case involves a foreign company incorporated in Japan that entered into a joint venture with an Indian company. During the assessment year 2009-10, the foreign company deputed employees to work under the control and supervision of the Indian joint venture companies. The payroll for these expatriates was processed partly in India and partly in Japan.

The foreign company was responsible for the tax liability arising from the employment in India under a tax equalization policy. The company took time to ascertain the taxability and the modalities for discharging the tax liability. It applied for a Tax Deduction Account Number (TAN) on March 18, 2009, and deposited the taxes on June 5, 2009, along with applicable interest. Despite this, the Assessing Officer (AO) initiated penalty proceedings under section 221(1) of the Income Tax Act for non-payment of taxes in accordance with the provisions of the Act and raised a demand for a penalty of Rs. 25,00,000.

The CIT(A) deleted the penalty, noting that the tax was eventually paid along with interest and that the delay was due to genuine reasons. The CIT(A) referenced the Supreme Court's decision in the case of Hindustan Steel Ltd. vs. State of Orissa (83 ITR 26), which stated that penalty should not be imposed unless the party acted in deliberate defiance of law or was guilty of conduct contumacious or dishonest. The CIT(A) also cited the Supreme Court's decision in the case of Amit Mohan Bindal (317 ITR 1), which held that penalty is a civil liability and that reasonable cause for non-compliance should be considered.

The CIT(A) further referenced the Supreme Court's decision in the case of CIT vs. Eli Lilly and Co. (312 ITR 225), which dealt with the issue of TDS on salaries of non-residents deputed to India. The Court held that if the tax deductor had a genuine and bona fide belief that it was not obligated to withhold taxes, no penalty should be imposed. The CIT(A) concluded that the foreign company had a reasonable cause for the delay and that the penalty was not sustainable.

2. Determination of whether ignorance of Indian Tax Laws by the Tax Deductor justifies the delay in TDS deposit:

The Revenue contended that the CIT(A) erred in deleting the penalty on the grounds that the Tax Deductor was ignorant of Indian Tax Laws. The Revenue argued that it took the Tax Deductor more than a year to understand and comply with the Indian Tax Laws, which was not a valid excuse.

The CIT(A) found that the delay in compliance was due to the complexities and uncertainties involved in the issue of TDS on salaries of expatriates. The CIT(A) noted that the foreign company had no mala fide intentions and had suo motu deposited the taxes along with interest even before receiving the notice from the AO. The CIT(A) held that the foreign company had a reasonable cause for the delay and that the penalty was not justified.

The ITAT upheld the order of the CIT(A), stating that there was no reason to interfere with the decision. The ITAT noted that the tax had been deducted and paid to the government account along with interest, and that the delay was due to genuine reasons. The ITAT dismissed the appeal filed by the Revenue.

Conclusion:

The ITAT dismissed the appeal filed by the Revenue, upholding the CIT(A)'s order that deleted the penalty for the delayed deposit of TDS. The ITAT found that the foreign company had a reasonable cause for the delay, and there was no mala fide intention. The decision was pronounced in the open court on October 30, 2015.